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NY leads U.S. in cost of teacher benefits

John R. Roby, @PSBJRoby
Published 12:07 a.m. ET July 9, 2016

Benefits(Photo: zimmytws, Getty Images/iStockphoto)

Story Highlights

New York spends more on instructional employee benefits in both total dollars and in dollars per pupil than any other state.

Benefit costs have made up a growing percentage of school district spending since 1994.

Albany has resisted broadening a retirement option that could cut costs.

When you pack your child’s back-to-school gear, throw in some $50 bills for the teacher — 120 of them should cover it.

That would bankroll the $5,982 average per-pupil share of employee benefits the state’s school districts paid in 2014, according to the newly released Annual Survey of School System Finances by the U.S. Census Bureau. The total doesn’t include an additional $11,446 per-pupil cost for wages, on average.

An analysis of school benefit spending by the USA TODAY Network’s Central New York Media found:

New York spends more on instructional employee benefits in both total dollars and in dollars per pupil than any other state. For total benefits, only Alaska’s are higher per pupil than New York.

Benefit costs to the state’s school districts have made up an increasingly large percentage of total school spending since 1994.

Albany has resisted broadening an existing retirement option that could cut costs, opting instead for a pension reform plan whose effects are a generation away.

Behind health insurance, the largest single chunk of benefit costs to a school district comes from “employer contributions” — the payments a district makes into the state retirement fund for teachers and administrators.

To be sure, the retirement system puts a lot of money into the hands of its beneficiaries — $6.4 billion in the last fiscal year, according to the plan’s most recent annual report. Some proportion of that is returned back into local economies, like any other income.

“What’s not being talked about is for 21 consecutive years, employer contribution rates were in the single digits, so in those years the schools were saving money,” said John Cardillo, spokesman for the New York State Teachers’ Retirement System, which oversees the retirement fund.

Yet taxpayers are helping fund the next generation’s pensions amid rising costs, uncertainty in markets and the annual struggle by school districts to meet their mandates while staying under the tax cap, all while the state’s lawmakers remain reluctant to even offer an alternative.

“If elected officials are making a promise today, they should pay the bill today,” said Ken Girardin, an analyst with the Albany-based Empire Center for Public Policy, which advocates reforms “grounded in free-market principles.”

NY pays the most

The $15.6 billion New York spent on total employee benefits eclipsed even California, at $13.1 billion, the Census figures show. On a per-pupil basis, it was more than twice the national average of $2,524.

Statewide, the per-pupil cost for total benefits to school districts varied wildly as a function of both enrollment and the number of employees. The 37-pupil Fire Island Union Free School District showed $1.3 million in benefit costs in the Census data, averaging $35,378 per enrolled student. The highest per-pupil cost in a district with more than 100 enrolled was Pocantico Hills Central School District in Tarrytown, Westchester County, whose 287 students averaged a per-pupil cost of $16,763.

The lowest per-pupil cost — which still far exceeds the national average — was Royalton Hartland Central School District in Middleport, Niagara County. With 1,448 enrolled, it had an average benefit cost of $3,401 per pupil.

Large city districts fell in the middle. The per-pupil average in New York City schools was $6,253, making it No. 275 of the 674 New York school districts included in the Census Bureau’s report. That’s for a district with 989,000 students and $6.1 billion in total employee benefit costs. In Rochester (No. 425 of 674), the per-pupil cost was $5,535, slightly below the state average.

Shifting returns

The New York State Teachers Retirement System administers the fund paying retirement benefits to most teachers and administrators in 822 school districts and BOCES in the state. It has nearly 268,000 active members, and pays about 158,000 retirees and beneficiaries.

Each year, it sets a contribution rate that school districts must pay into the system, equal to a percentage of a district’s payroll. That’s because the pension fund’s benefit structure is set by law, so employer contributions — typically drawn from tax revenue — make up any shortfalls in the fund’s investment income.

All else being equal, school districts and the taxpayers who fund them want to see that contribution rate as low as possible. For the current fiscal year, the rate is 13.26 percent, a three-year low but a far cry from the 0.36 percent of 2003.

The fluctuation comes because the fund uses a five-year trailing average based on its investment performance, which is tightly tied to Wall Street — the fund is heavily invested in equities. The five-year average now goes back to 2011, a good year for the market and one in which the pension fund’s assets returned a 10-year high of 23.2 percent.

Next year, 2011 will drop out of the calculation. Between 2012 and 2015, returns varied from 2.8 percent to 18.2 percent, averaging 9.9 percent. That means school districts could see an increase in their contribution rate next year, depending on how the rest of 2016 goes for the market.

“As long as you have a pension system reliant on making risky investments to hit its high expectations, taxpayers are going to repeatedly be asked to kick in more to make up for the stock market shortcomings,” Girardin said.

Long-term, the fund expects a 7.5 percent rate of return. In June 2015, its 25-year rate was 8.9 percent. For 2015, the fund’s year-end net assets totaled $109.7 billion, up from $47 billion in 1995. Last year, it made $6.5 billion in payments to retirees and beneficiaries.

In the past two decades, NYSTRS has paid $83.2 billion in benefits while collecting $21.3 billion from the employer contributions that school districts pay through tax revenue.

Investments generate about 85 percent of NYSTRS’ total income. It is funded at nearly 93 percent, putting it among the most secure public pensions in the nation, according to a recent study by the National Conference on Public Employee Retirement Systems.

An off-limits alternative

In an effort to rein in pension costs, Gov. Andrew Cuomo signed a law in 2012 creating a new level of benefits for state workers, including teachers, hired that year and thereafter. The “Tier VI” level raised the full-benefit retirement age from 62 to 63, increased the employees’ contributions and reduced the retirement benefit. Cuomo said at the time it would save taxpayers $80 billion over 30 years.

Most of those savings would come toward the end of that period. Only 10 percent of enrollees are currently in Tier VI, and the system encourages teachers to put in 20 years before collecting.

Even so, “as more and more Tier VI members join and contribute, that is going to have a positive impact on the employer contribution rate,” Cardillo, the NYSTRS spokesman, said.

Another option, pushed by the Empire Center among others, is some type of defined-contribution plan. Similar to a 401(k), in which part of an employee’s wages are taken, tax-free, and invested, such a plan would remove the cost of funding retirement from a school district.

A common feature of private-sector benefits packages, the defined-contribution option has been open to SUNY and CUNY employees since the 1960s, and up to 80 percent of certain classifications have taken it, according to figures from SUNY and CUNY.

The benefit, Girardin said, is that it “completely absolves the taxpayers from future responsibilities. We’re not asking tomorrow’s taxpayers to pay for the commitments of yesterday’s politicians.”

Yet even in defined-contribution retirement plans, employers typically pay a match, and it is far from clear that an individual saver would do better under a 401(k)-style plan.

A 2015 study by the Center for Retirement Research at Boston College found defined-benefit plans such as pensions generally got better returns than 401(k)-style defined-contribution plans between 1990 and 2012. The authors pointed to fees associated with each as the main reason for the difference. Fees for 401(k)-style plans ranged from 44 cents to $1.39 per $100 managed, the study found.

NYSTRS charges fees of about 24 cents per $100, according to its last annual report. Because of the pension plan’s size, Cardillo said, members get access to better investment funds and professional management, at a discount.

“Our mission is to make sure our members have a secure retirement,” he said. “With defined-contribution plans, the overwhelming research shows people often are unable to save enough for their retirement.”

Cuomo supported extending the option of enrolling in a defined-contribution plan as part of the Tier VI reforms, but legislators did not include it in the final bills. Only a few classes of state employees were allowed to enter a plan similar to the one open to SUNY and CUNY workers.

Albany, Girardin said, has “slowed the car, but they’re still driving in the wrong direction.”

JROBY@pressconnects.com

Findings

New York spends more on instructional employee benefits in both total dollars and in dollars per pupil than any other state.

Benefit costs to the state’s school districts have made up a growing percentage of spending since 1994.

BENEFIT COSTS

Per-pupil spending for staff benefits in selected Central New York school districts.